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Mobilizing Finance for Electric Vehicle Charging in India

Of the one million electric vehicle (EV) public charging points installed around the world, less than 0.1%, about 700, are in India. For a country aiming to increase EV use to 30% by 2030, charging infrastructure needs to ramp up exponentially. Mobilizing finance is critical to achieving the required scale.

Indian government has taken initial steps such as developing a national EV policy, the FAME II scheme, which includes a subsidy for setting up 2,636 electric vehicle charging stations across the country. However, given the size and growth of India’s transportation sector, much more extensive infrastructure is needed. To meet the scale of capital required for establishing charging infrastructure, nurturing and developing a private investment market is critical. Using public funds wisely to create the right conditions for private investment, a strategy known as catalytic finance, can be transformative.

EV Charging Business Models

While private electric vehicle owners may have the option to charge at their residence, commercial vehicles such as buses, vehicle fleets, ride hailing service providers need easy access to fast charging solutions. The simplest and, so far, the most popular business model is ‘charging as a service’. In this model, just like their oil-powered counterparts, electric vehicles drive in, charge up, and pay for the amount they draw.

Charging infrastructure is generally divided into two categories: captive charging stations—that are owned, or hosted, by retail stores, workplaces, parking lot operators, hotels, fuel stations for their patrons or large public or private companies for their own fleets; and public charging stations that cater to all vehicles irrespective of ownership.

Financing EV Charging: A Bankers Perspective

In evaluating an EV charging project, bankers would want to understand the cash flows and associated risk.

For a typical charging business, chief outflows of cash are capital expenditure, grid connection cost, energy costs for procuring electricity (grid or renewables), debt servicing, site leasing fees, if any, and operations and maintenance. State and national policies can significantly lower capital expenditure and investment. For example, FAME II provides capital subsidy on the equipment cost of charging infrastructure.

Inflows of cash are harder to predict. Revenue is dependent on how many vehicles utilize the charging station on an average and what price they pay for charging. Residential customers, for example, might be willing to pay extra for fast charging, and to extend their range, but only up to a point. Some commercial customers might be able to utilize off-peak hours for charging at a lower price point.

Projecting cash flows requires assumptions about the growth rate of electric vehicles in the coming years, which, in turn, is heavily dependent on state and national policies, vehicle models, consumer awareness, charging business models, optimal siting, and, in an interrelated manner, with the availability of charging infrastructure. And charging does not have to be the only revenue source. China’s ride hailing giant Didi Chuxing, for example, covers a wide range of services including vehicle renting, charging and maintenance.

Factors determining EV Charging profitability. Source: NRDC

To a large extent, these risks are common to many emerging asset classes like distributed renewable energy, energy efficiency financing among others. For each of these, financiers have to grapple with a higher number of unknowns since the market is relatively new. For example, for electric vehicles parameters like battery degradation, resale value, maintenance costs are still to be discovered. This is a key reason emerging clean energy market segments often find it challenging to raise capital at competitive terms. This is where dedicated clean energy finance institutions can be a game changer.

Opportunity for Mobilizing Private Investment through Green Windows

Dedicated green finance institutions, such as India’s proposed IREDA Green Window, that leverage public funds to catalyze a market for private investment can help make a compelling business case for EV infrastructure investment. Green Windows, like green banks, and similar institutions, would be driven by their mission to nurture and grow nascent clean energy markets until they are ready for self-sustaining private investment. Effective approaches demonstrated by global green banks include identifying market barriers, designing financing structures to mitigate and manage risk, and even assuming a higher risk through taking junior positions on their lending.

Often, catalytic finance institutions work well with existing public funds and programs and make them go farther in their impact. For example, the New York Green Bank complements the state subsidy program by designing innovative financial structures covering the entire EV value chain from manufacturing, battery leasing, fleet purchases to charging infrastructure.

In India, Tata Cleantech Capital Limited (TCCL), a member of the global Green Bank Network, has the mission to finance climate friendly projects and bring them mainstream. TCCL estimates India will have about 18 million EVs by 2030 which would require an investment of $260 billion, including for charging infrastructure.

Access to convenient, cost-effective, and fast charging infrastructure can significantly accelerate EV adoption rate in India. However, like other emerging clean energy segments, in addition to long term policy support, charging infrastructure needs customized financial solutions to grow the market. Developing a financing ecosystem that includes dedicated green finance institutions can be instrumental in realizing India’s goals for transitioning to electric mobility, cleaner air and a clean energy economy.

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